Bonus Quotation of the Day…

(Don Boudreaux)

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… is from pages 275-276 of the late, great UCLA economists Armen A. Alchian’s and William R. Allen’s Universal Economics (2018; Jerry L. Jordan, ed.); this volume is an updated version of Alchian’s and Allen’s magnificent and pioneering earlier textbook, University Economics:

An entrepreneur is more than an investor. Entrepreneurs think of new ideas and make investments in research with trial and error in the hope of finding profitable products or methods of production and distribution. Entrepreneurs, though trying to augment their personal wealth, have improved the well-being of the populace, and not merely by competing in prices of goods. They have invested in attempts to discover better goods and methods of production and distribution.

DBx: Yes.

It follow from the above-described reality that market entrepreneurship and industrial policy are inherently incompatible with each other. Entrepreneurs create new products and methods of production and distribution. Entrepreneurs also discover opportunities to use resources in ways that generate more value both for themselves and for others. Industrial policy, though, requires that resources be used only according to the plans of the industrial-policy designers and enforcers. These plans might not specify the particular uses to which each resource is to be devoted, but these plans necessarily put bounds on permitted uses of resources. Attempts to use resources in ways not permitted by the policy are out of bounds. Any truly creative idea for changing the use of some resource or resources will be, by its nature, unforeseen by the industrial-policy designers and, hence, inconsistent with the industrial policy. If the industrial policy is to continue to be pursued, all genuine entrepreneurial creativity must – must – be squelched.

The fact that many industrial-policy proponents deny that industrial policy is inherently inconsistent with genuine entrepreneurship – inherently inconsistent with entrepreneurial creativity and discovery and, hence, incompatible with genuine innovation – does not eliminate this inconsistency. Such denials merely cast industrial policy in a false light, making it appear to the unwitting public, and to gullible pundits, to be less destructive than it inevitably is of the very source of economic growth and widespread prosperity.